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Conceptually what is the Natural Rate of Interest? What is a good estimate of its level...

Conceptually what is the Natural Rate of Interest? What is a good estimate of its level today? Break down your overall estimate into an estimate of each of its component parts. Which famous economist gave us the Concept of the Natural Rate of Interest?

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Answer #1

The natural rate of interest-It is the rate of interest which is natural or favourable for an economy in maintaining economic growth i.e.increase in enployment,increase in productivity,healthy inflation rate.

Althought,there are many challenges in estimation of natural rate of interest due to many variable,many economist around the globe have established many to estimate it,but for U.S.estimate of Laubach-williams model is good.The natural rate of interest have declined in many country.Laubach-williams estimation apllies the kalman filter to data on real GDP,inflation and the short term interest rate to extract highly persistent componenets of the natural rate of output,its trends growth,and the natural rate of interest.The term was originated from swedish economist,Knut Wicksell and later folled by J.M.Keynes.

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